If the $12-billion acquisition of Freescale by NXP last year created an automotive semiconductor giant, today’s announcement that Qualcomm plans to purchase NXP for approximately $38 billion produces a silicon colossus in the fast-growing connected car space. And it instantly vaults Qualcomm to the number-one position in automotive semiconductors.

Following the merger with Freescale in May 2015, NXP became the dominant automotive semiconductor supplier in quickly emerging areas such as advanced driver assistance systems (ADAS) and as well as for other key car components such as networking and powertrain. And because NXP has expertise in secure identification and mobile transactions, it also brings strong cybersecurity assets to the table as hacking becomes a concern with connected cars.

By contrast, even after an acquisition of Bluetooth and telematics chip supplier CSR in 2014, Qualcomm had a much smaller role in automotive. “Even before the acquisition of CSR, Qualcomm was way behind in automotive, at number 41,” said Luca De Ambroggi principal analyst, automotive semiconductors, with IHS Markit.

“When Qualcomm acquired CSR it allowed them to be visible in the automotive supply chain," De Ambroggi said. This pushed Qualcomm to number 20 spot in automotive semiconductors. “With this recent acquisition, Qualcomm is now number one,” he said

Image by IHS Markit.

De Ambroggi said that “the acquisition complements the two companies. The mixture between traditional high-quality automotive processing components provided by NXP and the new frontier of applications coming from Qualcomm’s background in smartphones" makes for a powerful combination of core competencies, he added.

The acquisition of NXP not only gives Qualcomm instant clout in the automotive space, but also eases the San Diego company’s exit off the smartphone crazy train and the resultant revenue hits it took from a temporary loss of Samsung as a client and a general slowdown in device sales. “The NXP acquisition accelerates our strategy to extend our leading mobile technology into robust new opportunities,” Qualcomm CEO Steve Mollenkopf said in a statement.

Rick Clemmer, CEO of NXP, said in an email that the combined company creates a “semiconductor industry powerhouse” that’s expected to have annual revenues of more than $30 billion. The acquisition still needs to approved by both company’s boards of directors and is subject to regulatory approvals but is expected to close by the end of 2017.